Do I have a steady source of income (usually a job)? Have I been employed
on a regular basis for the last 2-3 years? Is my current income reliable?
Do I have a good record of paying my bills?
Do I have few outstanding long-term debts, like car payments?
Do I have money saved for a down payment?
Do I have the ability to pay a mortgage every month, plus additional costs?
If you can answer "yes" to these questions, you are probably
ready to buy your own home.

HOW DO I BEGIN THE PROCESS OF BUYING A HOME?

Start by thinking about your situation. Are you ready to buy a home?
How much can you afford in a monthly mortgage payment (see Question 4
for help)? How much space do you need? What areas of town do you like?
After you answer these questions, make a 'To Do" list and start doing
casual research. Talk to friends and family, drive through neighborhoods,
and look in the "Homes" section of the newspaper.

HOW DOES PURCHASING A HOME COMPARE WITH RENTING?

The two don't really compare at all. The one advantage of renting is
being generally free of most maintenance responsibilities. But by renting,
you lose the chance to build equity, take advantage of tax benefits, and
protect yourself against rent increases. Also, you may not be free to
decorate without permission and may be at the mercy of the landlord for
housing.

Owning a home has many benefits. When you make a mortgage payment, you
are building equity. And that's an investment. Owning a home also qualifies
you for tax breaks that assist you in dealing with your new financial
responsibilities-like insurance, real estate taxes, and upkeep- which
can be substantial. But given the freedom, stability, and security of
owning your own home, they are worth it.

HOW DOES THE LENDER DECIDE THE MAXIMUM LOAN AMOUNT THAT I CAN AFFORD?

The lender considers your debt-to-income ratio, which is a comparison
of your gross (pre-tax) income to housing and non-housing expenses. Non-housing
expenses include such long-term debts as car or student loan payments,
alimony, or child support. According to the FHA, monthly mortgage payments
should be no more than 29% of gross income, while the mortgage payment,
combined with non-housing expenses, should total no more than 41% of income.
The lender also considers cash available for down payment and closing
costs, credit history, etc. when determining your maximum loan amount.

HOW DO I SELECT THE RIGHT REAL ESTATE AGENT?

Start by asking family and friends if they can recommend an agent. Compile
a list of several agents and talk to each before choosing one. Look for
an agent who listens well and understands your needs, and whose judgment
you trust. The ideal agent knows the local area well and has resources
and contacts to help you in your search. Overall, you want to choose an
agent that makes you feel comfortable and can provide all the knowledge
and services you need.

HOW CAN I DETERMINE MY HOUSING NEEDS BEFORE I BEGIN THE SEARCH?

Your home should fit the way you live, with spaces and features that
appeal to the whole family. Before you begin looking at homes, make a
list of your priorities - things like location and size. Should the house
be close to certain schools? your job? to public transportation? How large
should the house be? What type of lot do you prefer? What kinds of amenities
are you looking for? Establish a set of minimum requirements and a "wish
list." Minimum requirements are things that a house must have for
you to consider it, while a "wish list" covers things that you'd
like to have but aren't essential.

QUICK CALCULATION EXERCISE

Gross Annual Income

Gross Monthly Income

29% Avail. for Housing

$15,000

$1,250

$363

$20,000

$1,667

$483

$25.000

$2,083

$604

$30,000

$2,500

$725

$35,000

$2,917

$846

$40,000

$3,333

$967

$45,000

$3,750

$1,088

$50,000

$4,167

$1,208

PART II. FINDING YOUR HOME

WHAT SHOULD I LOOK FOR WHEN DECIDING ON A COMMUNITY?

Select a community that will allow you to best live your daily life.
Many people choose communities based on schools. Do you want access to
shopping and public transportation? Is access to local facilities like
libraries and museums important to you? Or do you prefer the peace and
quiet of a rural community? When you find places that you like, talk to
people that live there. They know the most about the area and will be
your future neighbors. More than anything, you want a neighborhood where
you feel comfortable in.

WHAT SHOULD I DO IF I'M FEELING EXCLUDED FROM CERTAIN NEIGHBORHOODS?

Immediately contact the U.S. Department of Housing and Urban Development
(HUD) if you ever feel excluded from a neighborhood or particular house.
Also, contact HUD if you believe you are being discriminated against on
the basis of race, color, religion, sex, nationality, familial status,
or disability. HUD's Office of Fair Housing has a hotline for reporting
incidents of discrimination: 1-800-669-9777 (and 1-800-927-9275 for the
hearing impaired).

HOW CAN I FIND OUT ABOUT LOCAL SCHOOLS?

You can get information about school systems by contacting the city or
county school board or the local schools. Your real estate agent may also
be knowledgeable about schools in the area.

HOW CAN I FIND OUT ABOUT COMMUNITY RESOURCES?

Contact the local chamber of commerce for promotional literature or talk
to your real estate agent about welcome kits, maps, and other information.
You may also want to visit the local library. It can be an excellent source
for information on local events and resources, and the librarians will
probably be able to answer many of the questions you have.

HOW CAN I FIND OUT HOW MUCH HOMES ARE SELLING FOR IN CERTAIN COMMUNITIES
AND NEIGHBORHOODS?

Your real estate agent can give you a ballpark figure by showing you
comparable listings. If you are working with a REALTOR, they may have
access to comparable sales maintained on a database.

HOW CAN I FIND INFORMATION ON THE PROPERTY TAX LIABILITY?

The total amount of the previous year's property taxes is usually included
in the listing information. If it's not, ask the seller for a tax receipt
or contact the local assessor's office. Tax rates can change from year
to year, so these figures maybe approximate.

WHAT OTHER TAX ISSUES SHOULD I TAKE INTO CONSIDERATION?

Keep in mind that your mortgage interest and real estate taxes will be
deductible. A qualified real estate professional can give you more details
on other tax benefits and liabilities.

IS AN OLDER HOME A BETTER VALUE THAN A NEW ONE?

There isn't a definitive answer to this question. You should look at
each home for its individual characteristics. Generally, older homes may
be in more established neighborhoods, offer more ambiance, and have lower
property tax rates. People who buy older homes, however, shouldn't mind
maintaining their home and making some repairs. Newer homes tend to use
more modern architecture and systems, are usually easier to maintain,
and may be more energy-efficient. People who buy new homes often don't
want to worry initially about upkeep and repairs.

WHAT SHOULD I LOOK FOR WHEN WALKING THROUGH A HOME?

In addition to comparing the home to your minimum requirement and wish
lists, use the HUD Home Scorecard and consider the following:

Is there enough room for both the present and the future?
Are there enough bedrooms and bathrooms?
Is the house structurally sound?
Do the mechanical systems and appliances work?
Is the yard big enough?
Do you like the floor plan?
Will your furniture fit in the space? Is there enough storage space? (Bring
a tape measure to better answer these qusetions)
Does anything need to be repaired or replaced? Will the seller repair
or replace the items?
Imagine the house in good weather and bad, and in each season. Will you
be happy with it year 'round?
Take your time and think carefully about each house you see. Ask your
real estate agent to point out the pros and cons of each home from a professional
standpoint. Using the HUD Home Scorecard to keep track of the homes you
see is a great way to keep organized. (Refer to the HUD Home Scorecard)

WHAT QUESTIONS SHOULD I ASK WHEN LOOKING AT HOMES?

Many of your questions should focus on potential problems and maintenance
issues. Does anything need to be replaced? What things require ongoing
maintenance (e.g., paint, roof, HVAC, appliances, carpet)? Also ask about
the house and neighborhood, focusing on quality of life issues. Be sure
the seller's or real estate agent's answers are clear and complete. Ask
questions until you understand all of the information they've given. Making
a list of questions ahead of time will help you organize your thoughts
and arrange all of the information you receive. The HUD Home Scorecard
can help you develop your question list.

HOW CAN I KEEP TRACK OF ALL THE HOMES I SEE?

If possible, take photographs of each house: the outside, the major rooms,
the yard, and extra features that you like or ones you see as potential
problems. And don't hesitate to return for a second look. Use the HUD
Scorecard to organize your photos and notes for each house.

HOW MANY HOMES SHOULD I CONSIDER BEFORE CHOOSING ONE?

There isn't a set number of houses you should see before you decide.
Visit as many as it takes to find the one you want. On average, homebuyers
see 15 houses before choosing one. Just be sure to communicate often with
your real estate agent about everything you're looking for. It will help
avoid wasting your time.

PART III. YOU'VE FOUND IT

WHAT DOES A HOME INSPECTOR DO AND HOW DOES AN INSPECTION FIGURE INTO
THE PURCHASE OF A HOME?

An inspector checks the safety of your potential new home. Home inspectors
focus especially on the structure, construction, and mechanical systems
of the house and will make you aware of any repairs that are needed.

The inspector does not evaluate whether or not you're getting good value
for your money. Generally, an inspector checks (and gives prices for repairs
on): the electrical system, plumbing and waste disposal, the water heater,
insulation and ventilation, the HVAC system, water source and quality,
the potential presence of pests, the foundation, doors, windows, ceilings,
walls, floors, and roof. Be sure to hire a home inspector that is qualified
and experienced.

It's a good idea to have an inspection before you sign a written offer
since, once the deal is closed, you've bought the house "as is."
Or, you may want to include an inspection clause in the offer when negotiating
for a home. An inspection clause gives you an "out" on buying
the house if serious problems are found, or gives you the ability to renegotiate
the purchase price if repairs are needed. An inspection clause can also
specify that the seller must fix the problem(s) before you purchase the
house.

DO I NEED TO BE THERE FOR THE INSPECTION?

It's not required, but it's a good idea. Following the inspection, the
home inspector will be able to answer questions about the report and any
problem areas. This is also an opportunity to hear an objective opinion
on the home you'd like to purchase and it is a good time to ask general
maintenance questions.

ARE OTHER TYPES OF INSPECTIONS REQUIRED?

If your home inspector discovers a serious problem, another more specific
inspection may be recommended. It's a good idea to consider having your
home inspected for the presence of a variety of health-related risks like
radon gas, asbestos, or possible problems with the water or waste disposal
system.

HOW CAN I PROTECT MY FAMILY FROM LEAD IN THE HOME?

If the house you're considering was built before 1978 and you have children
under the age of seven, you will want to have an inspection for lead-based
paint. It's important to know that lead flakes from paint can be present
in both the home and in the soil surrounding the house. The problem can
be fixed temporarily by repairing damaged paint surfaces or planting grass
over effected soil. Hiring a lead abatement contractor to remove paint
chips and seal damaged areas will fix the problem permanently.

ARE POWER LINES A HEALTH HAZARD?

There are no definitive research findings that indicate exposure to power
Iines results in greater instances of disease or illness.

DO I NEED A LAWYER TO BUY A HOME?

Laws vary by state. Some states require a lawyer to assist in several
aspects of the home buying process while other states do not, as long
as a qualified real estate professional is involved. Even if your state
doesn't require one, you may want to hire a lawyer to help with the complex
paperwork and legal contracts. A lawyer can review contracts, make you
aware of special considerations, and assist you with the closing process.
Your real estate agent may be able to recommend a lawyer. If not, shop
around. Find out what services are provided for what fee, and whether
the attorney is experienced at representing homebuyers.

DO I REALLY NEED HOMEOWNER'S INSURANCE?

Yes. A paid homeowner's insurance policy (or a paid receipt for one)
is required at closing, so arrangements will have to be made prior to
that day. Plus, involving the insurance agent early in the home buying
process can save you money. Insurance agents are a great resource for
information on home safety and they can give tips on how to keep insurance
premiums low.

WHAT STEPS COULD I TAKE TO LOWER MY HOMEOWNER'S INSURANCE COSTS?

Be sure to shop around among several insurance companies. Also, consider
the cost of insurance when you look at homes. Newer homes and homes constructed
with materials like brick tend to have lower premiums. Think about avoiding
areas prone to natural disasters, like flooding. Choose a home with a
fire hydrant or a fire department nearby.

IS THE HOME LOCATED IN A FLOOD PLAIN?

Your real estate agent or lender can help you answer this question. If
you live in a flood plain, the lender will require that you have flood
insurance before lending any money to you. But if you live near a flood
plain, you may choose whether or not to get flood insurance coverage for
your home. Work with an insurance agent to construct a policy that fits
your needs.

WHAT OTHER ISSUES SHOULD I CONSIDER BEFORE I BUY MY HOME?

Always check to see if the house is in a low-lying area, in a high-risk
area for natural disasters (like earthquakes, hurricanes, tornadoes, etc.),
or in a hazardous materials area. Be sure the house meets building codes.
Also consider local zoning laws, which could affect remodeling or making
an addition in the future. Your real estate agent should be able to help
you with these questions.

HOW DO I MAKE AN OFFER?

Your real estate agent will assist you in making an offer, which will
include the following information:

Complete legal description of the property
Amount of earnest money
Down payment and financing details
Proposed move-in date
Price you are offering
Proposed closing date
Length of time the offer is valid
Details of the deal
Remember that a sale commitment depends on negotiating a satisfactory
contract with the seller, not just making an offer.

HOW DO I DETERMINE THE INITIAL OFFER?

Unless you have a buyer's agent, remember that the agent works for the
seller. Make a point of asking him or her to keep your discussions and
information confidential. Listen to your real estate agent's advice, but
follow your own instincts on deciding a fair price. Calculating your offer
should involve several factors: what homes sell for in the area, the home's
condition, how long it's been on the market, financing terms, and the
seller's situation. By the time you're ready to make an offer, you should
have a good idea of what the home is worth and what you can afford. And,
be prepared for give-and-take negotiation, which is very common when buying
a home. The buyer and seller may often go back and forth until they can
agree on a price.

WHAT IS EARNEST MONEY? HOW MUCH SHOULD I SET ASIDE?

Earnest money is money put down to demonstrate your seriousness about
buying a home. It must be substantial enough to demonstrate good faith
and is usually between 1-5% of the purchase price (though the amount can
vary with local customs and conditions). If your offer is accepted, the
earnest money becomes part of your down payment or closing costs. If the
offer is rejected, your money is returned to you. If you back out of a
deal, you must forfeit the entire amount.

WHAT ARE "HOME WARRANTIES," AND SHOULD I CONSIDER THEM?

Home warranties offer you protection for a specific period of time (e.g.,
one year) against potentially costly problems, like unexpected repairs
on appliances or home systems, which are not covered by homeowner's insurance.
Warranties are becoming more popular because they offer protection during
the time immediately following the purchase of a home, a time when many
people find themselves cash-strapped.

PART IV. GENERAL FINANCING QUESTIONS: THE BASICS

WHAT IS A MORTGAGE?

Generally speaking, a mortgage is a loan obtained to purchase real estate.
The "mortgage" itself is a lien (a legal claim) on the home
or property that secures the promise to pay the debt. All mortgages have
two features in common: principal and interest.

WHAT IS A LOAN-TO-VALUE (LTV) RATIO? HOW DOES IT DETERMINE THE SIZE
OF THE LOAN?

The loan to value ratio is the amount of money you borrow compared with
the price or appraised value of the home you are purchasing. Each loan
has a specific LTV limit. For example: with a 95% LTV loan on a home priced
at $50,000, you could borrow up to $47,500 (95% of $50,000), and would
have to pay $2,500 as a down payment.

The LTV ratio reflects the amount of equity borrowers have in their homes.
The higher the LTV ratio, the less cash homebuyers are required to pay
out of their own funds. So, to protect lenders against potential loss
in case of default, higher LTV loans (80% or more) usually require a mortgage
insurance policy.

WHAT TYPES OF LOANS ARE AVAILABLE AND WHAT ARE THE ADVANTAGES OF
EACH?

Fixed Rate Mortgages: Payments remain the same for the life of the loan

Balloon Mortgage- Offers very low rates for an initial period of time
(usually 5, 7, or 10 years); when time has elapsed, the balance is due
or refinanced (though not automatically)
Two-Step Mortgage- Interest rate adjusts only once and remains the same
for the life of the loan
ARMS linked to a specific index or margin
Advantages

An ARM may make sense if you are confident that your income will increase
steadily over the years or if you anticipate a move in the near future
and aren't concerned about potential increases in interest rates.

WHAT ARE THE ADVANTAGES OF 15 - AND 30-YEAR LOAN TERMS?

30-Year:

In the first 23 years of the loan, more interest is paid off than principal,
meaning larger tax deductions.
As inflation and costs of living increase, mortgage payments become a
smaller part of overall expenses.
15-year:

Loan is usually made at a lower interest rate.
Equity is built faster because early payments pay more principal.
38. CAN I PAY OFF MY LOAN AHEAD OF SCHEDULE?

Yes. By sending in extra money each month or making an extra payment
at the end of the year, you can accelerate the process of paying off the
loan. When you send extra money, be sure to indicate that the excess payment
is to be applied to the principal. Most lenders allow loan prepayment,
though you may have to pay a prepayment penalty to do so. Ask your lender
for details.

ARE THERE SPECIAL MORTGAGES FOR FIRST-TIME HOMEBUYERS?

Yes. Lenders now offer several affordable mortgage options, which can
help first-time homebuyers, overcome obstacles that made purchasing a
home difficult in the past. Lenders may now be able to help borrowers
who don't have a lot of money saved for the down payment and closing costs,
have no or a poor credit history, have quite a bit of long-term debt,
or have experienced income irregularities.

HOW LARGE OF A DOWN PAYMENT DO I NEED?

There are mortgage options now available that only require a down payment
of 5% or less of the purchase price. But the larger the down payment,
the less you have to borrow, and the more equity you'll have. Mortgages
with less than a 20% down payment generally require a mortgage insurance
policy to secure the loan. When considering the size of your down payment,
consider that you'll also need money for closing costs, moving expenses,
and possibly repairs and decorating.

WHAT IS INCLUDED IN A MONTHLY MORTGAGE PAYMENT?

The monthly mortgage payment mainly pays off principal and interest.
But most lenders also include local real estate taxes, homeowner's insurance,
and mortgage insurance (if applicable).

WHAT FACTORS AFFECT MORTGAGE PAYMENTS?

The amount of the down payment, the size of the mortgage loan, the interest
rate, the length of the repayment term and payment schedule will all affect
the size of your mortgage payment.

HOW DOES THE INTEREST RATE FACTOR IN SECURING A MORTGAGE LOAN?

A lower interest rate allows you to borrow more money than a high rate
with the same monthly payment. Interest rates can fluctuate as you shop
for a loan, so ask lenders if they offer a rate "lock-in" which
guarantees a specific interest rate for a certain period of time. Remember
that a lender must disclose the Annual Percentage Rate (APR) of a loan
to you. The APR shows the cost of a mortgage loan by expressing it in
terms of a yearly interest rate. It is generally higher than the interest
rate because it also includes the cost of points, mortgage and other fees
included in the loan.

WHAT HAPPENS IF INTEREST RATES DECREASE AND I HAVE A FIXED RATE LOAN?

If interest rates drop significantly, you may want to investigate refinancing.
Most experts agree that if you plan to be in your house for at least 18
months and you can get a rate 2% less than your current one, refinancing
is smart. Refinancing may, however, involve paying many of the same fees
paid at the original closing, plus origination and application fees.

WHAT ARE DISCOUNT POINTS?

Discount points allow you to lower your interest rate. They are essentially
prepaid interest, with each point equaling 1% of the total loan amount.
Generally, for each point paid on a 30-year mortgage, the interest rate
is reduced by 1/8 (or.125) of a percentage point. When shopping for loans,
ask lenders for an interest rate with 0 points and then see how much the
rate decreases with each point paid. Discount points are smart if you
plan to stay in a home for some time since they can lower the monthly
loan payment. Points are tax deductible when you purchase a home and you
may be able to negotiate for the seller to pay for some of them.

WHAT IS AN ESCROW ACCOUNT? DO I NEED ONE?

Established by your lender, an escrow account is a place to set aside
a portion of your monthly mortgage payment to cover annual charges for
homeowner's insurance, mortgage insurance (if applicable), and property
taxes. Escrow accounts are a good idea because they assure money will
always be available for these payments. If you use an escrow account to
pay property taxes or homeowner's insurance, make sure you are not penalized
for late payments since it is the lender's responsibility to make those
payments.

PART V. FIRST STEPS

WHAT STEPS NEED TO BE TAKEN TO SECURE A LOAN?

The first step in securing a loan is to complete a loan application.
To do so, you'll need the following information:

Pay stubs for the past 2-3 months
W-2 forms for the past 2 years
Information on long-term debts
Recent bank statements
Tax returns for the past 2 years
Proof of any other income
Address and description of the property you wish to buy
Sales contract
During the application process, the lender will order a report on your
credit history and a professional appraisal of the property you want to
purchase. The application process typically takes between 1-6 weeks.

HOW DO I CHOOSE THE RIGHT LENDER FOR ME?

Choose your lender carefully. Look for financial stability and a reputation
for customer satisfaction. Be sure to choose a company that gives helpful
advice and that makes you feel comfortable. A lender that has the authority
to approve and process your loan locally is preferable, since it will
be easier for you to monitor the status of your application and ask questions.
Plus, it's beneficial when the lender knows home values and conditions
in the local area. Do research and ask family, friends, and your real
estate agent for recommendations.

HOW ARE PRE-QUALIFYING AND PRE-APPROVAL DIFFERENT?

Pre-qualification is an informal way to see how much you may be able
to borrow. You can be "pre-qualified" over the phone with no
paperwork by telling a lender your income, your long-term debts, and how
large a down payment you can afford. Without any obligation, this helps
you arrive at a ballpark figure of the amount you may have available to
spend on a house.

Pre-approval is a lender's actual commitment to lend to you. It involves
assembling the financial records mentioned in Question 47 (without the
property description and sales contract) and going through a preliminary
approval process. Pre-approval gives you a definite idea of what you can
afford and shows sellers that you are serious about buying.

HOW CAN I FIND OUT INFORMATION ABOUT MY CREDIT HISTORY?

There are three major credit reporting companies: Equifax, Experian,
and Trans Union. Obtaining your credit report is as easy as calling and
requesting one. Once you receive the report, it's important to verify
its accuracy. Double-check the "high credit limit", "total
loan," and "past due" columns. It's a good idea to get
copies from all three companies to assure there are no mistakes since
any of the three could be providing a report to your lender. Fees, ranging
from $5-$20, are usually charged to issue credit reports but some states
permit citizens to acquire a free one. Contact the reporting companies
at the numbers listed for more information.
CREDIT REPORTING COMPANIES